Outsourcing and its Effects on the American Economy
Outsourcing and its Effects on the American Economy
Outsourcing has really greatly affected the American economy in recent years. Outsourcing is positively affecting the American economy because the jobs being taken by the foreign countries are making the costs of the production smaller, hence making the companies more efficient and effective, and ultimately more profitable. Outsourcing provides the company with more time to concentrate on the more significant tasks such as planning, controlling, and innovation. The companies give the foreign countries the less significant jobs, and this frees up time for the more significant tasks, and product development to be done in the United States. Another important positive factor to outsourcing is that people are basically working twenty-four hours a day because of the time differences and increase in personnel throughout the globe.
The main factors behind outsourcing are "Increased sophistication of IT, Global diffusion of knowledge, cost savings, focuses on core competencies, access to resources and knowledge and rise of global knowledge workforce" (Power p.7). When American companies outsource to foreign nations, the company can spend the majority of its time concentrating on the overall productivity and yield of the company, and spend less time concentrating on how less significant jobs are going. Although outsourcing may not cause all the problems of the company to go away, it is helping the company to spend more time focusing on the more significant jobs throughout the business. Saving money is also an important factor when companies choose to outsource to foreign companies.
The United States has the highest minimum wage in the world at $7.25 an hour, and some states are even higher than that. If a company can save money by transferring jobs to places such as China, India, or other places that have a much lower minimum wage, why not do this, and save hundreds of thousands or even millions of dollars a year? When a company decides to outsource production, the company has more people producing at a lower cost, thus making the cost of production lower. In the basic form, the costs of a company lie in three categories: materials, labor, and overhead. When one of these costs is dramatically lowered, the net income of the company has the potential to skyrocket. If outsourcing to India and China can dramatically lower the cost of labor, the cost of production goes down, and the net income has the potential to go up. Since the main goal of a company is to have the highest net income as possible, the company will be successful in this goal. Many companies rely on outsourcing to turn their company around.
Barry- Wehmiller a company based out of Saint Louis specializing in "packaging automotive parts, IT and engineering consulting services, corrugating, sheeting, and finishing equipment, and paper converting equipment" has fallen hard with the economy in the past couple of years (Barry-Wehmiller.com). They have had to cut the employee's pay, while also cutting the workforce by almost one thousand employees. While the company's goal never was to outsource, that is what the company has had to do to get the net income to be up to where it was before the recession hit. Barry-Wehmiller plans on transferring some of its design work over to Chennai, India. Although the company has to ultimately outsource, this kind of outsourcing will help the company in the long run because American and Indian designers can be discussing designs face-to-face and basically all day every day. The benefit of transferring some of the design work over to India is to cut the developmental costs, and to reduce the time in design projects (Pete Engardio). A lot of companies, including Barry-Wehmiller, have developed a theory called "transformational outsourcing." Basically companies outsource to foreign companies so they can eliminate the concentration on small tasks and worry more about the innovation of the company, and other major tasks of the company. The company wants to maintain their production in Green Bay, Minnesota, and they feel that the most efficient way to do this is to outsource some of their design jobs to foreign countries.
Barry-Wehmiller, along with a lot of other United States companies have gone from hating the thought of outsourcing to realizing that outsourcing can be helpful for a short period of time through transformational outsourcing. Although companies know that transferring these jobs offshore are greatly decreasing the costs of the company because of the decrease in labor dollars, the companies also know that if they can decrease the time spent on the less significant jobs, the companies can excel in innovation and increase profits. Outsourcing although may not be ideal in the short run, are benefiting the American and Global economy in the long run.
Sources:
Engardio, Pete, and Michael Arndt. "The Future Of Outsourcing."Businessweek - Business News, Stock Market & Financial Advice. 30 Jan. 2006. Web. 07 Apr. 2011. .
Griswold, Daniel T. "Economic Benefits of Foreign Outsourcing [Mackinac Center]."Mackinac Center: Advancing Liberty and Prosperity. 15 Sept. 2004. Web. 05 Apr. 2011. .
Power, Mark J. ., Kevin C. Desouza, and Carlo Bonifazi.The Outsourcing Handbook. London: Kogan Page, 2006. Print.
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